GOLDEN RULES - WAY OF WORKING EXAMPLE

We can take the following transactions and mention which accounts are involved in each case and which of them is to be debited and credited

April 2 Bought goods from AJAY Rs 8000

10 Paid cash to AJAY Rs 5000

21 Sold goods to vikram Rs 3000

25 Received cash from vikram Rs 2000

30 Paid salaries to employees Rs 500

30 Received commission Rs 250

 In the following table, we show the accounts to be debited and credited in the case of each transaction.

Date of transaction	Account to be debited	Account to be credited	Type of account	Reason for debit or credit
Apr - 02	Goods A/c ...................	.................... Ajay A/c	Real Personal	Good come in Ajay is the giver
Apr - 10	Ajay A/c ...............	.................. Cash A/c	Personal Real	Ajay is the receiver. cash goes out
Apr - 21	Vikram A/c ..................	................. Goods A/c	Personal Real	Vikram is the receiver. Goods goes out
Apr - 25	Cash A/c .................	............... Vikram A/c	Real Personal	Cash comes in vikram is the giver
Apr - 30	Salaries A/c ..................	................. Cash A/c	Nominal Real	Expense Cash goes out
Apr - 30	Cash A/c ..................	................. Commission A/c	Real Nominal	Cash come in Income

QUIZ 1 BASIC ACCOUNTING CONCEPTS

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CASH BOOK MEANING

Every business receives cash and pays cash practically every day, all the receipts and payment of cash are recorded in a separate book called the cash book.

In modern times cash includes not only legal tender money likes notes and coins but also other form of money like cheques, bank drafts etc.

The business man derives the following advantages by maintaining separate  cash book .

It shows owner how much he has received and how much he has paid.

It shows the owner how much money there should be left his cash box at any given time

it receives the owner of the trouble of counting his money whenever he wants to know how much money he has in hand.

SALES JOURNAL

SALES JOURNAL:

In this book are recorded all goods sold on credit. If there are cash sales they are recorded in cash book.

Sale of old assets is not recorded in this book.

Such transactions are passed through the journal proper

Invoice :

When goods are sold on credit.an invoice is given to the buyer, the seller generally has a bound invoice book.it contains consecutively numbered  invoices in duplicate. Original copy is given to the buyer and the duplicate remains in the book itself. The entries in the sales books are made with the help of the duplicate copies which are duly numbered.

DATE	NAME OF CUSTOMER	OUTWARD INVOICE	L.F	AMOUNT

1 The first column records the date of transaction

2 The second column sets out the name of the buyer and his address

3 Third column is written the number of the outward invoice number.

4 fourth column points out the page in the ledger where the buyer accounts is debited

5 The “ amount “ column specifies the net amount specified in the invoice.

POSTING :

The sales book is periodically totaled and the entries there from are posted to the ledger accounts under

Debit customers account with the individual amount against his name as To sales a/c with the date of sale

Credit sales account with the periodical total as By sundry debtors with the date when the book is totaled. is written the number of the outward invoice number.

Features of Trial Balance

The main features of the trial balance are

It is tabulation of balances of all accounts.

It classifies accounts into two classes

a) Accounts having debit balances

b) Accounts having credit balances

It refers to a specified date

LEDGER BALANCING (IE) EXAMPLE

LEDGER BALANCING IE EXAMPLE

FOR OLD BUSINESS

The following are some of the balancing appearing in the ledger of trader on 31-12-1995. Compute gross profit taking and closing stock as Rs 12000.

Opening stock 1-1-95                                             - 6000

Purchases                                                                - 48000

Purchases returns                                                    - 4000

Sales                                                                        - 63200

Sales returns                                                            - 1600

Wages                                                                      - 4000

Solution :

Cost of goods sold = Opening stock + net purchases + Wages – Closing stock

= Rs.6000 + 44000 + 4000 – 12000

= Rs 42000

Net sales = Sales – Sales Returns

= Rs 63,200 - 1600

= Rs 61,600

Gross Profit = Net Sales – Cost of goods sold

= Rs 61,600 – 42,000

= Rs 19,600

GOLDEN RULES AND SIGNIFICANCE OF OF DEBIT AND CREDIT BALANCES

SIGNIFICANCE OF OF DEBIT AND CREDIT BALANCES(GOLDEN RULES)

All accounts fall into three categories

1 Personal accounts

2 Real accounts

3 Nominal accounts

Personal accounts:

if a personal account shows debit balance

the person is a debtor to the business concern

if a personal account shows credit balance

the person is the creditor to the business concern

Real accounts

Real accounts show debit balance. If at any time, there is credit balance in a real account, it represents profit on sale of asset. The profit should be transferred to profit and loss account.

Nominal accounts

if a nominal accounts shows debit balance,it relates to an item of expenditure or loss

if a nominal accounts shows credit balance . it relates to an item of gain or income.

Balancing – Meaning

Balancing

After the ledger posting the next stage is “balancing” the accounts , we have seen that account is debited whenever its receives the benefit of the transaction and is credited when ever it gives the benefit of the transaction,Generally both the sides of account will not be equal.Either the debit side total may be more than the credit side total or the credit side total may be more than the debit side

total.An account is said to show a debit balance if debit side is heavier and is said to show a credit balance if the credit side is heavier.The process of showing the debit or credit balance of a particular account ' or ' striking the balance '

The difference between the total debits and the total credits of an account is called the balance.

'ie',,,, the net result of debits and credits in an account is the balance.

Balancing may be defined as the process of finding the difference between total debits and total credits of an account and writing of the difference in the lighter side so that the total of two sides becomes equal.

form of journal, contents of journal entry

Form of the journal

In actual practice, the journal is so ruled that when each transaction is passed thourgh its different columns.it includes the following elements.

Date of transaction

Name ofthe account to be debited

Amount to be debited

Name of the account to be credited

Amount to be credited

Posting references

Narration or explanation

DIFFERENCES BETWEEN THE JOURNAL AND THE LEDGER

JOURNAL	LEDGER
It is subsidiary book	It is main or principle book
This is book of original	This is book of final entry
Its is daily record transactions are recorded in this book in the chronological order	Posting is done periodically may be weekly fortnighty or monthly
Entering the transaction in the journal is called journalising	The act of recording entries in ledger called posting
Journal gives information in the form of entries	Ledger contains information in the form of accounts

Differences between an inTrade bill and financial bill

Trade bill	Financial bill
This bill accepted for value received	This bill accepted for no value received
This bill need not necessarily be discounted	This bill must necessarily be discounted
In this case drawer is the creditor and drawee is debtor	In this case drawer is the debtor and drawee is creditor
If this bill is discounted the discounting charges are to be borne by the drawer or thr endorsee	In case of mutual accommodation bill the discounting charges are to be borne by the drawer and drawee in a certain ratio
These bills are usually drawn and accepted for discharge of mutual indeptedness	These bills are drawn and accepted for raising short term funds required by business man
These bills originate from a dept or from a commercial transection	These bills do not originate from a dept or from a commercial transection

difference between inland and foreign bills of exchange

INLAND BILLS OF EXCHANGE	FOREIGN BILLS OF EXCHANGE
Only one copy is prepared	Three copies are prepared
Stamps are affixed only once	Stamps are affixed two times of the time of acceptence and at time of making payments
Written in common and local language of the country	Written in English OR in the language ofthe country of the drawer
It is noted after dishonour	Its is noted and protested after dishonour
Its is written on judicial stamp paper	Its is written on palin paper

book keeping merits in audio format

book keeping introduction merits of bookkeeping

BOOK KEEPING

Book keeping is the system of recording business

activities for the purpose of providing relaiable

information to the owners and mangers about the

state and propects of the business concern

 Merits of book keeping

 Merits to business man
 Merits to goverment
 Merits to employess
 Merits to consumers
 Merits to management
 Merits to investors

For business man

 It helps in acquiring main information about

business

 It helps inbuying and selling of business

 It facilitates comparison of the accounts of

various years

 It helps in obtaning loan

 It helps valuing good will

 It helps in controlling empolyees\

To goverment

 Financial help is given by the goverment on the

basis of accounting record

 Country industrial progress cab be judged on its

basis

 It helps making assesment

 It helps in providing licences

Merits to management

 Its on basis of accounting record that the

management makes new polices alters

excisting methods and formulates new scheme

To empolyees

 Accounting records help the employees in all

matters relating to their wages salaries bonus

etc.

To consumers

 Correct cost price and selling prices are fixed

on basis to accurate accounting record there

fore consumers can get manufactured articles

at reasonable price

To inverstors

 Prospectiveinverstors are geager to know the

past and present position of the unit concerned

he also makes an interpretataion about the

future of the business unit he does all this on

basis of accounting record

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